The Vietnam economy has transitioned from an agriculture-focused economy to one focused on industry and services. In the past, Vietnam had a command economy but transitioned to a socialist-oriented market economy through economic reforms in the 1980s and 1990s. This transition led to rapid economic growth of over 8% annually on average and significant poverty reduction. However, Vietnam still faces challenges such as inflation, poor infrastructure, power shortages, and corruption.
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Rastus Pre Trip Presentation
1. The Vietnam Economy The Council rasmus – lester – brian – shawn – darren – rastus
2. Road map Vietnam’s economy: In the Past (Before 1999) Transition of Economic Activity Present Economy Current concerns
3. History in short 1954-1975 French developed the area by segments South involved in irrigation and agriculture North is reserved for manufacturing Resulted in ideological differences and the civil war Unemployment & Lack of food
4. History in short 1976-1986 A series of plans were created to centralizing the economy Growth figures for industrial and agricultural sectors and national income Plans were extremely unrealistic Not enough resources : Technological shortfalls,too much small-scaled business
5. History in short 1986-1990s Free-market reforms known as Đổi Mới (renovation) Transition from a command economy to a Socialist-oriented market economy. Deregulation of laws Foreign investment grew
6. ĐổiMới 1. Payment of wage and salaries on a straight cash basis 2. Pricing of inputs to state enterprises on the basis of costs 3. Permission for private employers to employ up to ten workers 4. Abolition of internal customs check points 5. A revised Foreign Investment Law 6. Virtual decollectivization of agriculture 7. Elimination of virtually all direct subsidies and price controls 8. Increased autonomy for enterprise managers 9. Devaluation of the currency (dong) to market rates 10. Elimination of the State's monopoly in foreign trade 11. Provision for foreign participation in banking 12. Reduced restrictions on private enterprise 13. Creation of export processing zones for 100% foreign-owned enterprises 14. Legislation on shareholding corporations 15. Dismantling of major elements of central planning and bureaucracy 16. A 15% reduction in the government workforce 17. A return to former owners or their heirs of businesses in the South that were nationalized in 1975.
7. Under Đổi Mới Industries Sector Private businesses and foreign investments thrived More liberal operations 30,000 private businesses created, Economy grew at an annual rateof more than 8% Poverty was nearly halved.
8. UnderĐổiMới Agricultural Sector Scrapped agricultural collectives Removed price controls Enabled farmers to sell their goods in the marketplace Rapid growth in agricultural and industrial production
9. The Past Average growth 8% Level of exports and imports
10. The Past Per capita income $220 (1994) Poverty reduction :
33. Current Concerns – Poor Infrastructure World Bank agreed to loan US$190 million to Vietnam For infrastructure development (for public and private sectors)
35. Current Concerns – Power Shortage In MayVietnam faces power shortage (because of drought) Power obtained from hydroelectric power plants. NO WATER, NO POWER!
36. Current Concerns – Power Shortage In August Electricity of Viet Nam (EVN) reports that country is facing a severe power shortage of 1,400 MW. EVN imported approx. 2.2 billion kWh of electricity from china. (In first 7mths) Plans to increase supply sources and retain water.
39. Current Concerns - Corruption Risks of Corruption Sources indicates land management to be most corrupt sector in Vietnam. Policies and laws on land have many loopholes Encourage corruption Investors should take care during contracting procedures
40. Current Concerns - Corruption Positive Developments – related to Corruption Corruption is now a priority on the political agenda Vietnam has abolish almost 200 ‘unnecessary’ permits (for operating a business) Companies special relationship with authorities have declined
2003-2006: Increasing at a decreasing rate, but at least still increasing2007: Drop slightly2008: Rise from 2007As you can see, its GDP growth rate has been brisk and high, one of the highest in the region. People have even compared it to the Asian Tigers of the 1990s, and also alongside China and India. Its entry into the WTO, has also signaled Vietnam’s commitment to a capitalist-based economy; thus making it more integrated into the global market and economically liberal, even though it still has communist elements in its government.
As you can see from the charts, from 2003-2007, Vietnam’s imports and exports have mostly been consistent. With regards to its exports, it has been exporting mostly agricultural and labour-intensive products; things like Cashew, black pepper, coffee and Textiles and garments, Electronics and PC. This is in line with its developing country status, while it was predominantly an agricultural country, its population of around 87 million people, and most of them being from the ages of 15-64 years of age makes it an attractive choice to companies around the world who need cheap labour.Its main imports are also in line with it being a developing country- it imports mostly items that would help to boost its infrastructure, things like Machinery and spare parts, petroleum. However it still shows that agriculture is still vital to its economy through fertiliser being one of its main imports.
Despite the seemingly glowering praise of Vietnam as an up and rising economy, it hit a rather huge bump at 2008. In 2008, inflation sky-rocketed to around 25%, far outstripping the 8.5% GDP growth. This meant that even workers at a Nike factory who got a 10% increase in wages still would struggle to meet basic necessities. This has also resulted in strikes, something quite unusual in a communist country.To add on to Vietnam’s problems as you can see from the charts that the Dong has been weakening against the USD. This has made it difficult for them to import; items like machinery and fertiliser which the country would need in order to aid in its development would be more expensive, although its exports would be cheaper to buy and might increase demand.
Risks of corruption: Private providers should be particularly aware of continuing corruption related to public procurement and contracting procedures.Several sources indicate that land management constitutes the most corrupt sector in Vietnam. Policies and laws on land are incoherent and have many loopholes, while supervision and enforcement of the law within land administration is fairly lax and paves the way for corruption.
